Turnbull faces his most taxing test yet: wooing the states to overhaul the GST

Prime Minister Malcolm Turnbull’s first Council of Australian Governments (COAG) meeting this Friday will be a test of whether his vaunted commitment to a new “style of leadership … that recognises there is an enormous sum of wisdom both within our colleagues in this building and of course further afield” extends to the state and territory leaders.

Tax reform is dominating the media’s coverage ahead of Friday, as well as Thursday’s treasurers’ meeting. The two days of discussions will pick up from the work done at the special COAG retreat in July, and since, including new federal Treasury analysis of different tax options.

But don’t expect any clear decisions on tax reform on Friday – these discussions still have a long way to go. Instead, we can expect to see more progress on other national issues including domestic violence, new strategies against violent extremism, and tackling COAG’s structural flaws.

Some signs that this COAG might prove more co-operative

At the first Premiers Conference held in 1901, Prime Minister Edmund Barton had the courtesy to thank the premiers for attending and giving him “the advantage of your experience and wisdom”.

On Friday, premiers and chief ministers will fly into Canberra with different expectations. Such gentle civility has long since been replaced by the rituals of summitry, which focuses on the theatre of personalities and politics, winners and losers, and deals made or rebuffed.

For Turnbull, the signs so far have been positive. Many premiers – not just from his own side of politics – were quick to phone after Tony Abbott was deposed, and seemed happy with the response they met with.

Soon after becoming prime minister, Malcolm Turnbull travelled to the Gold Coast to announce new light rail funding with Queensland Premier Annastacia Palaszcuk.@TurnbullMalcolm/Instagram

Queensland Premier Annastacia Palaszczuk spoke of the “constructive” conversations she enjoyed on transport infrastructure and her support of his innovation agenda.

Victorian Premier Daniel Andrews also spoke of his “productive” relationship with Turnbull and the opportunity to move on from the impasse experienced with Abbott on redirecting federal funding from the scrapped East West Link project.

But will this positivity flow into Turnbull’s first COAG meeting?

COAG is a meeting of leaders, each with a high profile within their home jurisdiction. They bring their own priorities and leadership style to the meeting.

Within such a dynamic, collective agreement is never easy – especially on politically sensitive topics like raising the GST to 12.5% or 15%, as well as possibly increasing the Medicare levy, among the options reportedly outlined in an official document leaked to Fairfax ahead of Friday’s meeting.

But there are a couple of issues on the December agenda that transcend party lines.

From violence in our homes to violent extremism

The last two COAG meetings saw the issue of domestic violence high on the agenda, with the discussion guided by advice from the COAG Advisory Panel on Reducing Violence against Women and their Children.

This December meeting will focus on signing off on a campaign to change young people’s attitude to violence and to consider the Model Law Framework for Domestic Violence Orders and National Perpetrator Standards. All states and territories have committed to funding the campaign on changing young people’s attitudes.

There has been a strong bipartisan commitment to counter-terrorism and countering violent extremism measures from COAG ever since the Howard government.

This Friday’s meeting will acknowledge the transition from a police-based response to broaden the focus to one of working with the community to promote prevention and early intervention with individuals.

States have been investigating innovative strategies to engage with youth at risk, community engagement and resilience. This meeting will identify a number of national strategies to promote social cohesion.

The most taxing debate

The issue where partisan tensions will emerge is tax reform. This is particularly challenging for Labor states that must walk the divide between their jurisdictional needs for new funding streams while not undermining federal Labor’s opposition to any increase to the GST.

Labor premiers Palaszczuk and Andrews have both rejected any GST rise from 10%.

Colin Barnett has already shown he won’t make life easy for his federal colleagues on tax.Dean Lewins/AAP

But South Australian Premier Jay Weatherill broke party ranks by putting forward a plan to overhaul federal-state tax arrangements. The plan included increasing the rate to 15% with the increased revenue being retained by the Commonwealth, and in exchange the states would receive a fixed share of personal income tax. Weatherill will outline this plan at Friday’s meeting.

The prickliest premier that Turnbull will deal with during this discussion is likely to be a fellow Liberal – WA Premier Colin Barnett.

Barnett is now Australia’s longest-serving premier and is opposed to discussing raising the GST rate unless the distribution model is also reconsidered. After the April COAG meeting, Barnett threatened to “disengage” from the federation unless the GST system was changed. His stance has not softened in the interim.

It is unlikely a major announcement on tax reform will come from Friday’s COAG meeting, given the federal government’s options or “green” paper on tax reform won’t be released until next year. But the states' views will flow into the options outlined in that upcoming paper.

Tackling COAG’s structural flaws

Beyond the formal agenda, there are a number of structural issues around the strategic role of COAG; dominance by the Commonwealth of the agenda; and cultural issues about lack of collaboration and coercive decision-making that continue to irritate the premiers. It will not take them long to make the prime minister aware that their desire still remains strong to see reform of the COAG model.

With the prime minister controlling the agenda and setting the meeting times, the state and territory leaders have a range of reforms to pursue through the Reform of the Federation White Paper. The change of prime minister will not have diminished their enthusiasm for reform, so expect to see the state and territory leaders continuing to push for a joint Commonwealth/state secretariat and collaborative agenda setting.

As we have already seen, Turnbull’s charm can help him avoid some of the pitfalls of partisan and personality politics, which always lurk beneath the surface of COAG.

However, the transactional nature of intergovernmental relations in Australia has led to a system based on negotiation and well-developed bargaining skills. More than his charm, Turnbull will need to bring raw political deal-making skills to the COAG table this Friday, particularly if he wishes to win national consensus for any of the new proposals for tax reform.

Jennifer Menzies is a Member of the Commonwealth Grants Commission. She occasionally undertakes consulting work for state government.